Improving vehicle transmission efficiency and reducing vehicle fuel consumption is currently one of the main objectives in the automotive field. Reducing gear churning power losses has significant influence on the decreasing vehicle fuel consumption. Based on the two phase flow theory, a 2D two-phase model of the simplified hypoid gear is established to predict the churning losses in different conditions, the VOF method is introduced to track the volume fraction of the free surface, a standard k-ε model is also built to calculate complex turbulence. The oil distributions at the different rotational speed, the different immersion depth and the different viscosity as well as the churning losses of the hypoid gear are obtained and discussed in detail. In general, the churning power losses increase with the increase of the speed, the immersion depth and the viscosity, while the rotational speed shows the greatest influence on the churning losses. It is hoped that this investigation will be helpful in automotive industry applications.